Treasury issues new Retirement and Savings Initiatives

In a recent series of three Revenue Notices and four Notices the Treasury Department issued Retirement Savings & Initiatives to help Americans save for the future.

The new Initiatives:

  1. Expand automatic enrollment in 401(k) and other retirement savings plans
  2. Create easier ways to save tax refunds
  3. Allow unused leave to be converted to 401(k) savings
  4. Provide a better explanation of rollover options

Let me expand on the last item because of its time sensitive nature. Employees when receiving a distribution from a qualified retirement plan must be given what we in the retirement plan business call a “402(f) notice” named after Section 402(f) of the Internal Revenue Code which explains distribution options and their tax consequences. Most of us use a notice based on IRS safe harbor language dating back to 2002.

IRS Notice 2009-8 (25 pages, PDF) provides updated and simplified model employee notices which explain distribution options for retirees and other terminating employees updated for recent tax legislation. The existing employee notices can be used through December 31, 2009 but only if they are modified to reflect all currently applicable statutory changes, i.e., the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Pension Protection Act of 2006 (PPA).

So what to do? One of our Chicago ERISA attorneys, Andy Williams of Aronberg Goldgehn makes the following recommendations in his recent Retirement Savings & Initiative Bulletin:

All 402(f) notices need to be revised to reflect current statutory requirements. The substantive changes parallel those required for retirement plan documents. (see Retirement Plan Update: 2009 Deadline for Amendments). Plan administrators can use their existing 402(f) notices until the end of 2009, but only if they are customized to reflect current legal requirements. It makes more sense to adopt the applicable model notice from IRS Notice 2009-68. Because it is unclear that there is any grace period for adopting the new employee notice, this change should be made now with respect to all subject retirement plans, which includes plans qualified under Section 401(a) of the Internal Revenue Code (profit sharing, Section 401(k) and defined benefit pension plans) as well as Section 403(b) tax deferred annuity arrangements maintained by not-for-profit entities.

You can check our Andy’s other bulletins on his Benefit Law Group of Chicago website.


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